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The bank is keeping rates at a record low of 0.1% as it awaits the outcome of the Brexit trade deal


The Bank of England is keeping rates at a record low of 0.1% and is holding back buying more government bonds as it awaits the outcome of the Brexit talks

  • All nine members of the Monetary Policy Committee voted to keep rates on hold
  • The bank also left its government bond purchase program unchanged
  • But it signaled that it was ready to take further action in the future
  • The economy was stronger than expected by the BoE in recent months
  • However, the recent Covid curbs are tougher than expected and will mark a better-than-expected economic success in December and weigh on the first quarter

Bank of England policymakers have kept interest rates on hold and left the bond purchase program unchanged as they await the outcome of the EU trade deal.

All nine members of the Monetary Policy Committee voted at today's meeting to keep interest rates at their historic low of 0.1 percent.

They warned the outlook for the economy was "unusually uncertain" and would depend on how the pandemic unfolds, the restrictions it will bring and the outcome of talks with the EU.

On hold: The Bank of England left interest rates and quantitative easing unchanged

The bank made no mention of negative interest rates and left its bond purchase program unchanged after announcing last month it would buy more government bonds worth £ 150 billion.

The bank has created £ 895 billion in emergency funds through so-called quantitative easing since the last financial crisis, including £ 450 billion this year following the Covid-19 outbreak.

This involves the bank "printing" more digital money and using it to buy assets like government bonds from banks, which in turn are expected to pump that money into the economy by lending to businesses and people.

"The outlook for the economy remains unusually uncertain," said the bank.

"It will depend on the evolution of the pandemic and public health measures, as well as the nature and transition to the new trade agreements between the European Union and the UK."

The bank said the economy was stronger than expected in recent months.

For the final quarter of the year, a less pronounced drop of just over 1 percent has now been forecast, compared to a drop of 2 percent last month.

Sterling: The pound has risen lately, but a no-deal Brexit would fall

Sterling: The pound has risen lately, but a no-deal Brexit would fall

Recent vaccine developments should also "reduce the downside risks to the economic outlook," the bank said.

However, the rapid spike in coronavirus infections and the most recent round of restrictions were more severe than assumed in November and would result in an above-expected economic blow in December and weigh on the first quarter of 2021.

She also warned of the uncertainties stemming from a no-deal Brexit, signaling that further monetary policy measures may be on the way if the UK and EU fail to reach an agreement.

& # 39; The MPC will continue to monitor the situation closely. If the outlook for inflation weakens, the committee stands ready to take any additional measures necessary to achieve its mandate, ”he said.

The MPC said that in the event of a no-deal, the pound would fall, while inflation would likely be higher and growth lower than previously thought.

Policy makers said they would "tolerate" a temporary overshoot of the inflation target in the event of a no-deal.

Bank of England Governor Andrew Bailey

Bank of England Governor Andrew Bailey

The bank's update comes as the UK is in the final stages of talks with the European Union on a trade deal and new restrictions are being put in place before Christmas to limit the spread of Covid.

Laith Khalaf, financial analyst at AJ Bell, said: “The Bank of England will not take its next step until it knows which direction Brexit is going.

& # 39; In the event of a no-deal, it would likely be ready to overlook the temporary surge in inflation resulting from the weaker sterling and the imposition of tariffs, but it couldn't ignore the economic impact of a disruption to Brexit.

"The bank's governor has stated that no deal would have a greater economic impact than the pandemic in the long run. Therefore, if the Brexit talks fail, we can expect further incentives, either in the form of more QE or rate cuts."

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